Creating A Resilient Cloud Market

Dr James Mitchell, John Woodley, Frank Khan Sullivan, Strategic Blue

Focus Area:

The Digital Single Market is no longer a vision. It is a reality. Businesses and consumers alike depend on access to public cloud computing infrastructure commonly referred to as Infrastructure-as-a-Service. This infrastructure is provided by ‘hyperscale’ vendors that lease out remote data processing and storage capacity for use by European businesses and consumers. Due to growing critical dependence on this infrastructure – the public cloud resources that underpin the Digital Single Market – it is necessary to understand measures that improve market transparency and resilience.

Who benefits and how:

European companies running their businesses using software hosted on public cloud infrastructure, from high potential startups to established enterprises, benefit from contractual terms that are fair and pricing that is transparent. End consumers, potentially hundreds of millions of Europeans that access services over the Internet, ranging from video on-demand to visa application forms, who are otherwise unaware that these services are hosted on cloud infrastructure, indirectly benefit from a stable and resilient market. Governments backing ‘cloud first’ policies are more likely to fund projects that can procure cloud resources easily, on pricing that is transparently competitive. Finally, cloud vendors benefit from increased uptake of their services due to increased trust in the market as a result of transparency and resilience.

Digital Single Market Strategy

Europe’s growing critical dependence on public cloud computing infrastructure (“essentiality”) and the inequality of negotiating power between a vast number of users and a very few hyperscale cloud vendors (“asymmetry”) beg the question, “What could possibly go wrong with the cloud market?” It is the role of government to identify and plan against such, hopefully unlikely, Black Swan risks to our society.

Cloud computing has grown significantly over the past decade. Where once the majority of data processing and storage was ‘local’ to the device used, it is now delivered remotely as a service over the Internet. The sheer size of this new market and the value it represents to the overall economic output of Europe over the next decade makes it essential. By applying transferable knowledge gained from more established markets such as energy or financial services, we are able to encourage the cloud computing market to build-in resilience to unforeseeable shocks. Cloud computing services that have so demonstrably advanced technology, research and innovation in Europe over the past decade must continue to grow in the right direction. Cloud services are clearly “Essential”.

From the perspective of the cloud provider, whose primary focus is to increase adoption and utilisation of their own cloud services, there is a common need to promote trust in the wider market. The most visible efforts are those promoting data privacy and security. If customers lose trust, they try to leave. If they see no basis for trust, they don’t use public cloud services in the first place. The deeper trends which illustrate barriers to real competition in the overall cloud market such as punitively expensive data withdrawal costs, unbalanced service level agreements and restrictions on resale that block the transfer of risk to those best placed to manage it, create a perception of “lock-in” which in turn creates a barrier to future adoption and utilisation of cloud services. When a cloud buyer perceives that they have no viable alternative and are unable to vote with their credit card or purchase order, they spread their discontent. Measures that independently facilitate financial and technical interoperability counter the perception of “lock-in”, and increase trust in the wider market.

From the perspective of the cloud buyer that seeks to procure Infrastructure-as-a-Service, the direct on-demand price published by cloud vendors masks the complexity of its true cost. The lack of independently verifiable pricing information, or benchmarks, frustrates buyers attempting to make an effective comparison with other cloud services that are competing for their business. Opaque pricing strategies prevent buyers from obtaining a complete view of the market and makes it more difficult for a buyer to make an informed purchasing decision about the appropriate price premium to pay for differentiating qualities between providers.

Considering the case of buyers already using cloud resources, discrepancies between what is billed compared to what is deployed or used, would prove difficult to resolve without independent metering where the price applied is verifiably correct. In the case of outages or technical failures where the provider is at fault, the terms of typical service level agreements used throughout the industry typically preclude the possibility of financial compensation for the buyer short of a pro-rata refund of any upfront reservation fee. When a buyer is unable to make a fully informed purchasing decision, to independently verify that they are being billed correctly, to receive restitution for failures that negatively impact their operations or are otherwise at risk from unilateral assignation of risk, it is typically because they are at a disadvantage relative to the vendor supplying the service. Such a market is said to be “Asymmetric”.

With Europe’s growing digital dependence on infrastructure they don’t own, from companies with whom one cannot easily negotiate, we have to ask the question, “What could possibly go wrong?” Nobody likes the answers because they potentially invite comparison with the events leading up to the Global Financial Crisis or various electricity blackouts, and yet, we have to ask this question in order to understand measures that minimise the risk of a shock that could threaten the continued growth of the European Digital Single Market.